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It has become a daunting cycle for wireless firms: as they improve their service, customers jam the airwaves. The crowd eventually overwhelms the network, sending carriers' promises of better service up in smoke.

Those big costs, combined with emerging pricing wars among the carriers, will weigh on wireless profits. But there's a clear winner from the innovation race:
American TowerAMT 0.40042972946576816%American Tower REITU.S.: NYSEUSD102.8
0.410.40042972946576816%
/Date(1481307816665-0600)/
Volume (Delayed 15m)
:
1423144
P/E Ratio
51.916666666666664Market Cap
43591826685.0323
Dividend Yield
2.1401819154628146% Rev. per Employee
1639470More quote details and news »AMTinYour ValueYour ChangeShort position
(AMT). The Boston-based company is the world's largest operator of cell towers, leasing antenna space to every major carrier in the U.S. and Latin America. And, since more antennas mean more-reliable networks, American Tower is in an admirable position.

American Tower's revenue is already swelling. Rent at its U.S. towers rose 12% in the third quarter, the fastest rate in five years. Total sales are forecast to grow 20% in 2014, to $3.99 billion, driving net income up 46%, to $922 million. Jim Taiclet, American Tower's long-time CEO, tells Barron's that it's the best environment he's seen in years. "We've got four legitimate carriers deploying 4G in the U.S., all working at the same time on a pretty aggressive schedule," he says.

They're all striving to meet the booming demand for wireless bandwidth. Cisco Systems estimates that mobile-data traffic will grow 56% a year in North America through 2017, thanks largely to the influx of video being delivered to smartphones and tablets. Customers are now adding multiple devices to each account. With 326 million active connections; the U.S. wireless penetration rate was 102% at the end of 2012, according to industry lobbyist CTIA.

While American Tower is a clear beneficiary of the startling growth in mobile technology, it's insulated from the usual high-flier risks. American Tower owns 57,000 towers across the world; about two-thirds of sales come from the U.S., with Mexico, Brazil, and India making up most of the rest. The company signs carriers to long-term leases, which include annual price hikes. In 2012, American Tower converted to a real-estate investment trust, which affords significant tax savings. Investors essentially get a high-tech growth company secured by a solid real-estate portfolio.

American Tower says its average U.S. tower has 2.6 "tenants," or carriers, with room for four to five. That's more growing space than at the typical commercial REIT, where occupancy generally hovers over 90%, says Eric Frankel, an analyst at REIT specialist Green Street Advisors.

By REIT standards, American Tower is a behemoth. Its $31 billion market value makes it the second-largest REIT behind mall owner
Simon Property GroupSPG -0.08439507786126538%Simon Property Group Inc.U.S.: NYSEUSD183.505
-0.155-0.08439507786126538%
/Date(1481307836319-0600)/
Volume (Delayed 15m)
:
384037
P/E Ratio
33.029986304332155Market Cap
57712954248.523
Dividend Yield
3.600851110262426% Rev. per Employee
1076120More quote details and news »SPGinYour ValueYour ChangeShort position
(SPG). Yet, the REIT world has been slow to embrace American Tower. The company is not yet included in the top REIT indices, including the much-used industry benchmark MSCI U.S. REIT index. Eventually, it will find its way into the index, which should drive additional demand for the shares.

The Bottom Line

A push to improve service by the four big U.S. wireless carriers is driving demand for tower space, which could lift American Tower's shares 20%.

American Tower analysts spend most of their time looking at a cash-flow metric called adjusted funds from operations. AFFO, which adds depreciation to net income and subtracts capital expenses, is forecast to grow 19% next year and another 14% in 2015. At a recent $78, American Tower trades at 18 times next year's forecast of $4.34. Strong industry trends could push the multiple slightly higher a year from now. At 19 times 2015 estimates, the stock would be worth $94. It yields 1.5%.

DESPITE THE GOOD NEWS, American Tower has sorely trailed the broad market this year, up just 2% in 2013, versus 27% for the S&P 500. Industry consolidation has always been a risk to American Tower, because it cuts back on its customers base, in theory, at least. A week ago, The Wall Street Journal reported No. 3 carrier Sprint (S) was looking into buying T-Mobile US (TMUS), the No. 4 player. The deal would have a steep regulatory hurdle, and incompatible technology means it would likely take years for the carriers to find synergies in their infrastructure. In the meantime, they are under pressure to improve their networks, which means more tower locations.

Overseas operations also tend to make investors nervous. In July, research firm Muddy Waters warned about American Tower's international portfolio. It recommended investors short the stock. American Tower immediately clarified the issue, which involved accounting for international acquisitions. The market has since shrugged off the report. Just 2% of the stock is held short, versus an 8% short position for
SBA CommunicationsSBAC -1.0826870782556148%SBA Communications Corp.U.S.: NasdaqUSD98.215
-1.075-1.0826870782556148%
/Date(1481307811611-0600)/
Volume (Delayed 15m)
:
260869
P/E Ratio
121.17283950617283Market Cap
12319208089.6664
Dividend Yield
N/ARev. per Employee
1239360More quote details and news »SBACinYour ValueYour ChangeShort position
(SBAC), American Tower's smaller rival.

The company isn't randomly buying towers across the world. It has anchored its operations in Latin America, where it has solid relationships with wireless giants Telefónica and América Móvil.

American Tower recently returned its focus to the U.S. In October, it closed a $4.8 billion deal for a private tower group called Global Tower Partners. The acquisition improves American Tower's position in San Francisco and New York. Those are the same big markets, it so happens, where Verizon is racing to improve its coverage.